Abstract

This research work highlights the result of a research carried out to examine “The Effect of Monetary Incentives to Staff on the Financial Performance of Small and Medium Sized Enterprises in Buea”.

Specifically, the study aimed at examining the effect of employee motivation (Salary Increase and Bonus)  on the profitability of SMEs in Buea, evaluating the effect of job satisfaction on the profitability of SMEs in Buea and assessing the effect of employee turnover on the profitability of SMEs in Buea through the adoption of a descriptive survey design.

This research uses a sample size base on a survey of 40 enterprises. A substantial aspect of the study involved collecting primary data through the instrumentation of self-administered questionnaires so as to collect the required data. The data collected were classified and analyzed using descriptive statistics and the multiple regression analysis with the help of Statistical Package for Social Sciences (SPSS) software.

The hypothesis was tested through a correlation test, and it revealed that there is a moderate positive relationship between the variables. This result showed that monetary incentives enhances financial performance of small and medium sized enterprises hence, the null hypotheses were rejected and the alternative hypotheses accepted which states that employee motivation, job satisfaction and employee turnover has a significant impact on the financial performance of small and medium sized enterprises.

The study therefore recommends that SMEs should make employees motivation as a priority through coming up with attractive financial incentives. SMEs should come up with training programmes that aiming at equipping employees with the required skills. Financial rewards should motivate employees to work harder.

Motivation programmes should aim at motivation employees to improve performance hence doing better than the competitors. The study further recommends that for every policy measure taken by SMEs to improve monetary incentives  to staff, employees motivation, job satisfaction and employee turnover should be taken into consideration because failure to do so will lead to detrimental effect on their financial performance.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Organizational performance is a complex phenomenon strongly influenced by the company’s ability and motivation. One of the main problems facing most employers in the Public and personal sectors is the way to inspire their employees to improve performance. The financial system is specially based on the idea that economic incentives enhance performance (Erbasi, 2012). Therefore, the employees of an organization have internal motivations and desires that are expressed in the form of actions and efforts towards the work functions to satisfy their needs. Employee motivation is the level of electricity, dedication and creativity that an organization’s personnel apply to their work (Chaudhary and Sharma, 2012).

The issue of employee performance cannot be underestimated. The most important thing for an organization is the devotion and loyalty of its employees, which is achieved if the employees are the best prizes.

The awards are very concerned to overcome dissatisfaction and increase employee performance (Erbasi, 2012).In most companies and other organizations, money is effectively used to maintain a properly supervised organization and not primarily as a motivator. Any bonus scheme for guide people needs to be related to significant criteria for employees and can be measured always (Afande, 2015).

The incentive to achieve a particular goal, such as the increase in volume, should not be an incentive to worsen other performance standards such as quality. Therefore, it is important to know what most induces a worker, since many people have different needs and aspirations. The truth that prize control has received tremendous attention to investigate has focused more on evolved international locations and economies (Agwu, 2012).

Anyim, Chidi and Badejo (2012) have devised numerous approaches to inspire humans to task. However, because human beings are different from each other in terms of needs, culture, what motivates them varies as well. Some employees are motivated by financial and other incentives and by some non-financial incentives.

Managers continually seek ways to create a motivating environment in which employees work at the optional levels to achieve the organization’s goals. Because the human useful resource is the most treasured useful resource of any organization, it should spark off, train, increase and especially inspire to reap individual and organizational desires (Jobber & Lee, 2014).

Monetary premiums because the motivation is high in growing countries due to the excessive fee of residing and the low quality of life they face. Most of man’s activities are related to making money. In Nigeria, public and private sector employees sometimes receive between 3 and 6 months of Earnings, and but they have not resigned, but retain to paintings due to the fact they recognize they will be paid and now not because they respect their work and not because they appreciate work so much.

The truth here is that, principally, human beings are inspired by way of monetary rewards. It believed that the man, if motivated, will make an extra effort to satisfy his employer. All organizations are concerned approximately what desires to be accomplished to gain excessive ranges of performance sustained thru human beings (Kinyua, 2014).

Consequently, the problem of adequate motivation of employees following many tries made by way of the professional supervisor is to discover the exceptional way to manipulate it to attain a aim or a project with the least quantity of materials and human assets to be had to inspire them to achieve individual and organization economic rewards since the motivations are excessive in growing nations due to the excessive fee of residing and the low first-class of lifestyles they face (Kurose, 2013).

Currently, many jobs are paid through results-based payments or at least have a component that includes financial payments based on individual performance. Above all, since performance is relatively easy to investigate, financial incentives that depend on visible results seem useful and feasible and, as a result, are used in many ways in today’s society.

This means that many employees, especially at a certain level (manager) or with a substantial part of identifiable success, are rewarded for their commitment based on observed performance measures. The intention behind performance based compensation is to encourage people to increase their motivation and commitment to tasks, and therefore to profitability for the organization. Unique incentives are granted and an alternate in behavior is achieved to gain the high-quality feasible result for the organization (Jobber & Lee, 2014).

Akintoye (2000) asserts that money remains the most significant motivational strategy. As far back as 1911, Frederick Taylor and his scientific management associate described money as the most important factor in motivating the industrial workers to achieve greater productivity. Taylor advocated the establishment of incentive wage systems as a means of stimulating workers to higher performance, commitment, and eventually satisfaction.

Money possesses significant motivating power in as much as it symbolizes intangible goals like security, power, prestige, and a feeling of accomplishment and success. Katz, Sinclair, et al. (2005) demonstrates the motivational power of money through the process of job choice. He explains that money has the power to attract, retain, and motivate individuals towards higher performance.

For instance, if a librarian or information professional has another job offer which has identical job characteristics with his current job, but greater financial reward, that worker would in all probability be motivated to accept the new Job offer. Banjoko (1996) states that many managers use money to reward or punish workers. This is done through the process of rewarding employees for higher productivity by instilling fear of loss of job (e.g., premature retirement due to poor performance). The desire to be promoted and earn enhanced pay may also motivate employees.

Serena, Mohammad, & Emrad, (2012) stated that the employees would do their best only when they feel that their hard work will be rewarded in return. Motivation through rewards is of crucial importance.

Many superiors believe that using motivational techniques encourage employees to produce better output. As organizations need a qualitative workforce to attain their objectives, the right kind of strategy in the form of monetary incentives and benefits will bring in motivation among the employees.

The prime purpose of monetary incentive towards successful accomplishment is to motivate the employees and encourage them so as to excel in their job performances. So, monetary incentives play an important role in every work environment whether it is a public sector or a private sector.

Using monetary incentives in organisations help to encourage the employees to be more creative fulfilled and satisfied. This kind of rewards in organizations leads them to enhance their employees’ performances and reach their goals. Berger & berger, (2015) argued that employees prefer to have monetary incentives in return to their successful accomplishments. Sajuyigbe, Olaoye, and Adeyemi (2013) stated that rewards are basic conceptual elements in improving employee performances.

Entwistle (1987) propounded that rewarded employees have a high degree of motivation and it directly impacts their performances. Danish and Usman (2010) opined that proper usage of rewards as a tool in an organization would produce a conducive environment so as the employees gets motivated and rise to the occasion.

Lawler (1985) claimed that rewards lead to increased employees’ satisfaction and will have a direct impact on employee’s performance. Hong (1995) proposed that rewards might motivate employees only when they yield rewards due to their sincere and hard work. Fairbank and Williams (2001) suggested that to stimulate an employee’s creativity managers should use rewards. Schaufeli (2002) found out the need for the rewards in an organization so as to avoid burnouts the situation in which employees tend to be not satisfied; will have negative outlooks and a little dedication. Well performed employees should be incentivized with monetary compensation, which is an easier and the best way to encourage employees so as to effective and efficient (Pink, 2011).

According to Lemieux, MacLeod, and Parent (2009), performance pay based on a good performance measure can increase qualitative productivity. Muralidharan and Sundararaman (2009) claimed that the incentive payment is directly related to the employees’ output, which accelerates their performances. Bates (2003) indicated that merit pay could be made as an attractive factor provided the merit pay rise should be not less than seven percent of the core pay so that it can be perceived as a motivating factor.

Lazear (2000) confirmed that when salary increases, most of the employees diligently dispose of their duties. Langton and Robbins (2007) emphasized the fact that an individual can be motivated only when there is a difference in pay between a good performer and an average performer. Salary is one of the determining factors in job selection (Lopez 2002;Al-Zoubi, 2012).

Bokorney (2007) confirmed that salary plays could be designated as an appreciating factor for an individual.  Hislop (2003) proclaimed that the motivated employees are required in a rapidly growing organization, and Yungson, Barbara & Christy, (2002) found that an organization to be more productive the employees need to perform their jobs with full zest. Summarily, the monetary incentive in its various forms encourages employees to be more productive and self-motivating towards the welfare of the organization they belong.

1.2 Statement of the Problem

There debate on the impact of monetary incentives on worker performance has not been settled yet. It is believed that poor incentive packages are an important factor in employee disengagement and low productivity. Employees’ low morale and motivation prevents them from increasing their performance.

In many cases staff believes that their contributions are not recognized by the organizations and the administration does not have the necessary skills this could help in the formulation of a good policy of monetary incentives. The survival and prosperity of any company is determined through the manner the workers are rewarded and rewarded (Kurose, 2013).

The reward system and motivating incentives will determine the level of commitment of employees and their attitude towards work. According to Roberson and Stewart (2016), incentives are praise for doing properly in an employee’s process within the shape of economic and non-financial incentive.

However, for an organization to achieve its goal in any competitive society, employers need to have a thorough understanding of what drives employees to perform efficiently and reward them accordingly. There is a growing want for organizations to develop reward systems that motivate staff to work hard.

Money is a factor to motivate people, to retain good staff and to encourage them to give their best while at work. Employers need to pay attention to the financial rewards offered by the organization and do it as a continuous exercise. It is a well-known fact that, individual behavior is intensely personal and unique, yet organizations tend to use the same policies to the needs of individuals.

It is difficult but far more effective if leaders in an organization can create and sustain an environment in which all employees are motivated, the overall performance is sure to be good. One of the major problems facing most employers in both public and private sector is how to motivate their employees in order to improve performance.

Economics is largely based on the assumption that monetary incentives improve performance. It is generally believed that effect of monetary incentives is unambiguously positive. A large monetary incentive improves employees’ performance. People in various works of life are faced with financial problems. This also affects productivity on the job.

A worker with financial problems experiences lack of concentration which could result in poor quality and quantity of work. All organizations are concerned with what should be done to achieve and sustain high level of performance among its work force and motivation of employees is essential for the survival of any organization.

There have been several problems associated with monetary incentives in worker performance by workers and managers in SMEs. These are: poor incentive packages that have been an important factor affecting employee engagement and productivity, employees are not willing to increase their performance because they believe their contributions are not well recognized by SMEs and that ‘Administration lacks the necessary skills that could help them in the formulation of a good policy of monetary incentives.

There is a growing need for SMEs to develop reward systems that motivate the staff to work hard and improve performance. For this purpose, this study tries to critically evaluate the effect of monetary incentives to staff on the financial performance of SMEs in Buea.

1.3 Research Questions

1.3.1 Main Research Question

What is the effect of monetary incentives to staff on the financial performance of Small and Medium sized enterprises in Buea?

1.3.2 Specific Research Questions

1. What is the effect of employee motivation (Salary Increase and Bonus) on the profitability of SMEs in Buea?
2. How does job satisfaction affect the profitability of SMEs in Buea?
3. What is the effect of employee turnover on the profitability of SMEs in Buea?

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